al fujairah national insurance company p.s.c. · the principal activity of the company is the...

AL FUJAIRAH NATIONAL INSURANCE COMPANY P.S.C.

Independent auditor’s report and financial

statements for the year ended 31 December 2016

Al Fujairah National Insurance Company P.S.C.

Content Pages

Directors’ report 1

Independent auditor’s report 2 - 7

Statement of financial position 8

Statement of income 9

Statement of comprehensive income 10

Statement of changes in equity 11

Statement of cash flows 12

Notes to the financial statements 13 - 57

Al Fujairah National Insurance Company P.S.C. 9

Statement of income

for the year ended 31 December 2016

Note 2016 2015

AED AED

Insurance premium revenue 17 195,531,247 180,880,325

Insurance premium ceded to re-insurers 17 (50,433,687) (45,580,089)

Net insurance premium revenue 17 145,097,560 135,300,236 Gross claims incurred 9 (158,279,685) (116,684,105)

Insurance claims recovered from re-insurers 9 57,423,304 21,370,712

Net claims incurred 9 (100,856,381) (95,313,393) Gross commission earned 7,596,140 6,886,981

Less: commission incurred (11,268,417) (8,773,146)

Net commission incurred

(3,672,277) (1,886,165)

Underwriting profit

40,568,902 38,100,678 General and administrative expenses relating to underwriting activities

(27,603,502) (25,182,702)

Net underwriting profit 12,965,400 12,917,976

Investments and other income 18 11,676,261 8,494,342

Finance costs (370,421) (779,863)

Unallocated general and administrative expenses (6,900,875) (6,295,675)

Profit for the year 19 17,370,365 14,336,780

Basic earnings per share 20 17 14

The accompanying notes form an integral part of these financial statements.


Statement of comprehensive income


2016 2015

AED AED

Profit for the year 17,370,365 14,336,780

Other comprehensive income:

Items that will not be reclassified subsequently to profit or loss:

Net increase/ (decrease) in fair value of investments

designated at FVTOCI 12,486,390

(7,937,582)

Gain on sale of investments designated at FVTOCI 2,496,473 3,580,332

Other comprehensive income/ (loss) for the year 14,982,863 (4,357,250)

Total comprehensive income for the year 32,353,228 9,979,530



Statement of changes in equity


Share

capital

Statutory

reserve

General

reserve

Cumulative

changes in fair

values -

FVTOCI

Property

revaluation

reserve

Retained

earnings Total

AED AED AED AED AED AED AED

Balance at 31 December 2014 (Restated) 100,000,000 23,152,200 19,307,040 (22,621,753) 11,205,588 51,183,485 182,226,560

Profit for the year 2015 - - - - - 14,336,780 14,336,780

Other comprehensive loss - - - (7,937,582) - 3,580,332 (4,357,250)

Total comprehensive income for the year - - - (7,937,582) - 17,917,112 9,979,530

Transfer to retained earnings on sale of investment

at FVTOCI - - - 15,511,093 - (15,511,093) -

Approved cash dividends (Note 28) - - - - - (10,000,000) (10,000,000)

Transfer to statutory reserve (Note 13) - 1,433,678 - - - (1,433,678) -

Transfer to general reserve (Note 13) - - 1,433,678 - - (1,433,678) -

- 1,433,678 1,433,678 15,511,093 - (28,378,449) (10,000,000)

Balance at 31 December 2015 100,000,000 24,585,878 20,740,718 (15,048,242) 11,205,588 40,722,148 182,206,090

Profit for the year 2016 - - - - - 17,370,365 17,370,365

Other comprehensive income - - - 12,486,390 - 2,496,473 14,982,863

Total comprehensive income for the year - - - 12,486,390 - 19,866,838 32,353,228

Transfer to retained earnings on sale of investment

at FVTOCI - - - 34,688,662 - (34,688,662) -

Transfer to statutory reserve (Note 13) - 1,737,037 - - - (1,737,037) -

Transfer to general reserve (Note 13) - - 1,737,037 - - (1,737,037) -

- 1,737,037 1,737,037 34,688,662 - (38,162,736) -

Balance at 31 December 2016 100,000,000 26,322,915 22,477,755 32,126,810 11,205,588 22,426,250 214,559,318


Al Fujairah National Insurance Company 12

Statement of cash flows


2016 2015

AED AED

Cash flows from operating activities


Adjustments for:

Depreciation of property and equipment 1,906,631 1,514,005

Gain on disposal of property and equipment (188,145) (81,658)

Allowance for doubtful debts - 324,965

Provision for employees’ end of service indemnity 1,294,536 1,008,996

(Gain)/loss on investments at FVTPL (2,425,876) 2,323,778

Gain on increase in fair value of investment property (55,728) (1,625,326)

Other investment income (8,970,985) (9,111,136)

Finance costs 370,421 779,863

Operating cash flows before changes in operating

assets and liabilities 9,301,219 9,470,267

Increase in reinsurance contract assets (37,069,583) (1,274,350)

Increase in insurance contracts liabilities 47,568,592 2,641,926

Decrease/ (increase) in insurance and other receivables 5,433,423 (15,796,368)

Increase/ (decrease) in insurance and other payables 4,038,838 (3,746,997)

Cash generated from/ (used in) operations 29,272,489 (8,705,522)

Employees’ end of service indemnity paid (1,182,610) (471,678)

Finance costs paid (370,421) (779,863)

Net cash generated from/ (used in) operating activities 27,719,458 (9,957,063)

Cash flows from investing activities

Purchase of property and equipment (2,147,703) (11,399,704)

Proceeds from disposal of investments at FVTOCI 29,808,709 14,338,370

Purchase of investments at FVTPL and at FVTOCI (59,656,844) (18,175,297)

Proceeds from disposal of investments at FVTPL 40,787,519 13,420,812

Increase in investment in fixed deposits with maturity over 3 months (5,436,684) (6,246,981)

Proceeds from disposal of property and equipment 202,938 1,493,173

Interest received 1,688,846 1,440,465

Dividends received 4,208,894 4,429,200

Income from investment properties 3,073,245 3,241,471

Net cash generated from investing activities 12,528,920 2,541,509

Cash flows from financing activities

Decrease in bank borrowings (9,229,579) (8,820,137)

Dividends paid - (10,000,000)

Cash used in financing activities (9,229,579) (18,820,137)

Net increase/ (decrease) in cash and cash equivalents 31,018,799 (26,235,691)

Cash and cash equivalents, at the beginning of the year 7,641,574 33,877,265

Cash and cash equivalents, at the end of the year (Note 21) 38,660,373 7,641,574



Notes to the financial statements


1. General information

Al Fujairah National Insurance Company P.S.C, Fujairah (the “Company”) is incorporated as a public

shareholding company by Emiri Decree No. 3 issued by His Highness, The Ruler of Fujairah in October

1976. The Company is subject to the regulations of U.A.E. Federal Law No. 6 of 2007, concerning

formation of the Insurance Authority of U.A.E. and regulation of its operations and is registered in the

Insurance Companies Register of the Insurance Authority of U.A.E. under registration number (11). The

address of the Company’s registered office is P.O. Box 277, Fujairah, United Arab Emirates.

The principal activity of the Company is the writing of all classes of general insurance and short term life

insurance. The Company operates through its head office in Fujairah and branch offices in Dubai, Abu

Dhabi, Sharjah and Dibba.

The Company’s ordinary shares are listed on Abu Dhabi Securities Exchange, United Arab Emirates.

2. Application of new and revised International Financial Reporting Standards (IFRS)

2.1 New and revised IFRSs applied with no material effect on the financial statements

The following new and revised IFRSs, which became effective for annual periods beginning on or after 1

January 2016, have been adopted in these financial statements. The application of these revised IFRSs has

not had any material impact on the amounts reported for the current and prior years but may affect the

accounting for future transactions or arrangements.

IFRS 14 Regulatory Deferral Accounts

Amendments to IAS 1 Presentation of Financial Statements relating to Disclosure initiative

Amendments to IFRS 11 Joint arrangements relating to accounting for acquisitions of interests in

joint operations

Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets relating to

clarification of acceptable methods of depreciation and amortisation

Amendments to IAS 16 Property, Plant and Equipment and IAS 41 Agriculture: Bearer Plants

Amendments to IAS 27 Separate Financial Statements relating to accounting investments in

subsidiaries, joint ventures and associates to be optionally accounted for using the equity method in

separate financial statements

Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in

Other Entities and IAS 28 Investment in Associates and Joint Ventures relating to applying the

consolidation exception for investment entities

Annual Improvements to IFRSs 2012 – 2014 Cycle covering amendments to IFRS 5, IFRS 7, IAS 19

and IAS 34



for the year ended 31 December 2016 (continued)


(continued)

2.2 New and revised IFRS in issue but not yet effective

The Company has not yet applied the following new and revised IFRSs that have been issued but are not

yet effective:

New and revised IFRSs

Effective for

annual periods

beginning on or after Annual Improvements to IFRS Standards 2014 – 2016 Cycle amending

IFRS 1, IFRS 12 and IAS 28

The amendments to IFRS 1

and IAS 28 are effective for

annual periods beginning on

or after 1 January 2018, the

amendment to IFRS 12 for

annual periods beginning on

or after 1 January 2017

Amendments to IAS 12 Income Taxes relating to the recognition of

deferred tax assets for unrealised losses

1 January 2017

Amendments to IAS 7 Statement of Cash Flows to provide disclosures

that enable users of financial statements to evaluate changes in

liabilities arising from financing activities.

1 January 2017

IFRIC 22 Foreign Currency Transactions and Advance Consideration

The interpretation addresses foreign currency transactions or parts of

transactions where:

there is consideration that is denominated or priced in a foreign

currency;

the entity recognises a prepayment asset or a deferred income

liability in respect of that consideration, in advance of the

recognition of the related asset, expense or income; and

the prepayment asset or deferred income liability is non-

monetary.

1 January 2018

Amendments to IFRS 2 Share Based Payment regarding classification

and measurement of share based payment transactions

1 January 2018

Amendments to IFRS 4 Insurance Contracts: Relating to the different

effective dates of IFRS 9 and the forthcoming new insurance contracts

standard.

1 January 2018

Amendments to IFRS 4: Insurance Contracts which introduces the

overlay approach and deferral approach towards implementing IFRS 9

before implementing the replacement standard that the IASB Board is

developing for IFRS 4

When IFRS 9 is first applied

or 1 January 2021 under

deferral approach.





(continued)

2.2 New and revised IFRS in issue but not yet effective


Effective for

annual periods

beginning on or after

Finalised version of IFRS 9 (IFRS 9 Financial Instruments (2014)) was

issued in July 2014 incorporating requirements for classification and

measurement, impairment, general hedge accounting and

derecognition. This amends classification and measurement

requirement of financial assets and introduces new expected loss

impairment model.

A new measurement category of fair value through other

comprehensive income (FVTOCI) will apply for debt instruments held

within a business model whose objective is achieved both by collecting

contractual cash flows and selling financial assets.

A new impairment model based on expected credit losses will apply to

debt instruments measured at amortised costs or FVTOCI, lease

receivables, contract assets and certain written loan commitments and

financial guarantee contract.

1 January 2018

IFRS 16 Leases

IFRS 16 specifies how an IFRS reporter will recognise, measure,

present and disclose leases. The standard provides a single lessee

accounting model, requiring lessees to recognise assets and liabilities

for all leases unless the lease term is 12 months or less or the

underlying asset has a low value. Lessors continue to classify leases as

operating or finance, with IFRS 16’s approach to lessor accounting

substantially unchanged from its predecessor, IAS 17.

1 January 2019

Amendments to IAS 40 Investment Property: Amends paragraph 57 to

state that an entity shall transfer a property to, or from, investment

property when, and only when, there is evidence of a change in use. A

change of use occurs if property meets, or ceases to meet, the

definition of investment property. A change in management’s

intentions for the use of a property by itself does not constitute

evidence of a change in use. The paragraph has been amended to state

that the list of examples therein is non-exhaustive.

1 January 2018

1 January 2019




2. Application of new and revised International Financial Reporting Standards

(IFRS) (continued)

2.2 New and revised IFRS in issue but not yet effective (continued)


Effective for

annual periods

beginning on or after

IFRS 15 Revenue from Contracts with Customers

In May 2014, IFRS 15 was issued which established a single

comprehensive model for entities to use in accounting for revenue

arising from contracts with customers. IFRS 15 will supersede the

current revenue recognition guidance including IAS 18 Revenue, IAS 11

Construction Contracts and the related interpretations when it becomes

effective.

The core principle of IFRS 15 is that an entity should recognize revenue

to depict the transfer of promised goods or services to customers in an

amount that reflects the consideration to which the entity expects to be

entitled in exchange for those goods or services. Specifically, the

standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance

obligations in the contract.

Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.

Under IFRS 15, an entity recognises when (or as) a performance

obligation is satisfied, i.e. when ‘control’ of the goods or services

underlying the particular performance obligation is transferred to the

customer. Far more prescriptive guidance has been added in IFRS 15 to

deal with specific scenarios. Furthermore, extensive disclosures are

required by IFRS 15.

1 January 2018

Amendments to IFRS 15 Revenue from Contracts with Customers to

clarify three aspects of the standard (identifying performance

obligations, principal versus agent considerations, and licensing) and to

provide some transition relief for modified contracts and completed

contracts.

1 January 2018

Amendments to IFRS 10 Consolidated Financial Statements and IAS 28

Investments in Associates and Joint Ventures (2011) relating to the

treatment of the sale or contribution of assets from and investor to its

associate or joint venture.

Effective date deferred

indefinitely




2. Application of new and revised International Financial Reporting Standards

(IFRS) (continued)

2.2 New and revised IFRS in issue but not yet effective (continued)

Management anticipates that these new standards, interpretations and amendments will be adopted in the

Company’s financial statements as and when they are applicable and adoption of these new standards,

interpretations and amendments, except for finalised version of IFRS 9, may have no material impact on

the financial statements of the Company in the period of initial application.

The application of finalised version of IFRS 9 may have significant impact on amounts reported and

disclosures made in the Company’s financial statements in respect of the Comapny’s financial assets

and financial liabilities. However, it is not practicable to provide a reasonable estimate of effects of the

application of their standard as the Company is in the process of performing a detailed review.

3. Significant accounting policies

The significant accounting policies applied in the preparation of these financial statements are summarised

below. These policies have been consistently applied to each of the years presented.

3.1 Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards

(IFRS) and applicable requirements of United Arab Emirates (UAE) Federal Law No. 2 of 2015 and

Federal Law No. 6 of 2007, concerning the formation of Insurance Authority of UAE.

The UAE Federal Law No. 2 of 2015 ("Companies Law") has come into force on 1 July 2015. The

Company has twenty four months from the effective date of the Companies Law to comply with its

provisions (“the transitional provisions”) and the Company has availed of these transitional provisions.

On 28 December 2014, the United Arab Emirates (UAE) Insurance Authority issued Financial

Regulations for insurance companies (the “Regulations”) and were then subsequently published in the

UAE Official Gazette No. 575 on 28 January 2015 and came into force on 29 January 2015. The

insurers are given a grace period of between one to three years to comply with the Regulations,

depending on the section involved.

The Company is in the process of complying with the requirements of the Financial Regulations for

Insurance Companies issued by the Insurance Authority especially pertaining to Article (1) of Section

(7) and Appendix (1) relating to presentation of financial statements and disclosures.




3. Significant accounting policies (continued)

3.2 Basis of preparation

The financial statements have been prepared on the historical cost basis, except for the revaluation of

financial instruments and investment properties.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date, regardless of whether that price is directly

observable or estimated using another valuation technique. In estimating the fair value of an asset or a

liability, the Company takes into account the characteristics of the asset or liability if market participants

would take those characteristics into account when pricing the asset or liability at the measurement date.

Fair value for measurement and/or disclosure purposes in these financial statements is determined on such

basis, except for share-based payment transactions that are within the scope of IFRS 2, leasing transactions

that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not

fair value, such as net realizable value in IAS 2 or value in use in IAS 36.

In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3

based on the degree to which the inputs to the fair value measurements are observable and the significance

of the inputs to the fair value measurements in its entirety, which are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities

that the entity can access at the measurement date;

Level 2 inputs are inputs other than quoted prices included within Level 1, that are observable

for the asset or liability, either directly or indirectly; and

Level 3 inputs are unobservable inputs for the assets or liability.

The principal accounting policies are set out below.

3.3 Insurance contracts

3.3.1 Definition

The Company issues contracts that transfer insurance risk. Insurance contracts are those contracts that

transfer significant insurance risk. As a general guideline, the Company determines whether it has

significant insurance risk by comparing benefits paid with benefits payable if the insured event did not

occur.

3.3.2 Recognition and measurement

Insurance contracts are classified into two main categories, depending on the duration of risk and whether or

not the terms and conditions are fixed.

3.3.3 Short term insurance contracts

These contracts are casualty and property insurance contracts.

Casualty insurance contracts protect the Company’s customers against the risk of causing harm to third

parties as a result of their legitimate activities. Damages covered include both contractual and non

contractual events.





3.3 Insurance contracts (continued)

3.3.3 Short term insurance contracts (continued)

Property insurance contracts mainly compensate the Company’s customers for damage suffered to their

properties or for the value of property lost. Customers who undertake commercial activities on their

premises could also receive compensation for the loss of earnings caused by the inability to use the insured

properties in their business activities (business interruption cover).

Short-duration life insurance contracts protect the Company’s customers from the consequences of events

that would affect on the ability of the customer or customer’s dependents to maintain their current level of

income. Guaranteed benefits paid on occurrence of the specified insurance event are either fixed or linked to

the extent of the economic loss suffered by the policy holder. There are no maturity or surrender benefits.

For all these insurance contracts, premiums are recognised as revenue (earned premiums) proportionally

over the period of coverage. The portion of premium received on in-force contracts that relates to unexpired

risks at the reporting date is reported as the unearned premium liability.

Claims and loss adjustment expenses are charged to profit or loss as incurred based on the estimated liability

for compensation owed to contract holders or third parties damaged by the contract holders. They include

direct and indirect claims settlement costs and arise from events that have occurred up to the reporting date

even if they have not yet been reported to the Company.

3.3.4 Reinsurance contracts

Contracts entered into by the Company with reinsurers under which the Company is compensated for losses

on one or more contracts issued by the Company and that meet the classification requirements for insurance

contracts are classified as reinsurance contracts. Contracts that do not meet these classification requirements

are classified as financial assets. Insurance contracts entered into by the Company under which the contract

holder is another insurer are included with insurance contracts. The benefits to which the Company is

entitled under its reinsurance contracts are recognised as reinsurance contract assets. These assets consist of

short-term balances due from reinsurers, as well as longer term receivables that are dependent on the

expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable

from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance

contracts and in accordance with the terms of each reinsurance contract. Reinsurance liabilities are primarily

premiums payable for reinsurance contracts and are recognised as an expense when due. The Company

assesses its reinsurance contract assets for impairment on a regular basis. If there is objective evidence that

the reinsurance contract asset is impaired, the Company reduces the carrying amount of the reinsurance

contract assets to its recoverable amount and recognises that impairment loss in the profit or loss. The

Company gathers the objective evidence that a reinsurance asset is impaired using the same process adopted

for financial assets held at amortised cost. The impairment loss is also calculated following the same method

used for these financial assets.






3.3.5 Insurance contract liabilities

3.3.5.1 Unearned Premium Reserve (“UPR”)

The unearned premium considered in the insurance contract liabilities comprises the estimated proportion of

the gross premiums written which relates to the periods of insurance subsequent to the reporting date. UPR

are calculated using the 1/365 method except for marine cargo and engineering. The UPR for marine cargo

is recognized as higher of 1/365 method and fixed proportion of the written premiums as required in the

financial regulation and UPR for engineering assumes increase in risk with the duration of the project such

that the risk faced is 100% at the expiry of the contract. The rate at which the premium is earned is deemed

to increase at the same rate at which the risk faced increases over the lifetime of the policy.

3.3.5.2 Incurred But Not Reported

Provision is also made for any claims incurred but not reported (“IBNR”) at the reporting date by the

independent actuary approved by Insurance Authority, using a range of standard actuarial claim projection

techniques, based on empirical data and current assumptions that may include margin for adverse deviation

as required by the new regulation.

3.3.5.3 Unexpired Risk Reserve

Unexpired risk reserve is a prospective assessment of the amount that needs to be set aside in case premium

is expected to be insufficient to cover anticipated claims, expenses and a reasonable profit margin.

3.3.5.4 Claims outstanding

Claims outstanding comprise provisions for the Company’s estimate of the ultimate cost of settling all

claims incurred but unpaid at the reporting date whether reported or not, and related internal and external

claims handling expenses reduced by expected salvage and other recoveries. Claims outstanding are

assessed by reviewing individual reported claims. Provisions for claims outstanding are not discounted.

Adjustments to claims provisions established in prior periods are reflected in the financial statements of the

period in which the adjustments are made. The method used, and the estimates made, are reviewed

regularly.

3.3.5.5 Allocated Loss Adjustment Expense (ALAE)/ Unallocated Loss Adjustment Expense Reserves

(ULAE)

The ALAE reserve is for expenses and costs that can be assigned to a specific claim and the ULAE reserve

is for all other overhead expenses and costs that cannot be assigned to a specific claim.

3.3.6 Policy acquisition costs

Commissions and other acquisition costs that are related to securing new contracts and renewing existing

contracts are charged to profit or loss when incurred.

3.3.7 Salvage and subrogation reimbursements

Estimates of salvage and subrogation reimbursements are considered as an allowance in the measurement of

the insurance liability for claims.






3.3.8 Liability adequacy test

At the end of each reporting period, the Company assesses whether its recognised insurance liabilities are

adequate using current estimates of future cash flows under its insurance contracts. If that assessment shows

that the carrying amount of its insurance liabilities is inadequate in the light of estimated future cash flows,

the entire deficiency is immediately recognised in profit or loss and an unexpired risk reserve is created.

3.3.9 Receivables and payables related to insurance contracts

Receivables and payables are recognised when due. These include amounts due to and from agents, brokers

and insurance contract holders.

If there is objective evidence that the insurance receivable is impaired, the Company reduces the carrying

amount of the insurance receivable accordingly and recognises that impairment loss in profit or loss.

3.4 Revenue recognition

3.4.1 Insurance contract income

Revenue from insurance contracts is measured under revenue recognition criteria stated under insurance

contracts in these financial statements (see note 3.3).

3.4.2 Commission income

Commission income is recognised when the reinsurance premium is ceded based on the terms and

percentages agreed with the reinsurers.

3.4.3 Interest income

Interest income is accrued on a time proportion basis, by reference to the principal outstanding and at the

effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts

through the expected life of the financial asset to the asset’s net carrying amount.

3.4.4 Dividend income

Dividend income from investments is recognised when the Company’s right to receive payment has been

established.

3.4.5 Rental income

Rental income from investment properties which are leased under operating lease is recognised on an

accrual basis over the term of the relevant lease.

3.5 General and administrative expenses

80% of general and administrative expenses for the year are allocated to insurance departments in

proportion to each department’s share of written premiums.





3.6 Foreign currencies

The financial statements of the Company are presented in the currency of the primary economic

environment in which the Company operates (its functional currency). For the purpose of the financial

statements, the results and financial position of the Company are expressed in Arab Emirates Dirham

(“AED”), which is the functional currency of the Company and the presentation currency for the financial

statements.

In preparing the financial statements of the Company, transactions in currencies other than the Company’s

functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the

transactions. At the end of each reporting period, monetary items denominated in foreign currencies are

retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are

denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was

determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not

retranslated.

Exchange differences are recognised in profit or loss in the period in which they arise.

3.7 Borrowing costs

Borrowing costs directly attributable to the acquisition and construction of qualifying assets, which are

assets that necessarily take a substantial period of time to get ready for their intended use, are added to the

cost of those assets, until such time as the assets are substantially ready for their intended use.

Where applicable, investment income earned on the temporary investment of specific borrowings pending

their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the year in which they are incurred.

3.8 Employee benefits

3.8.1 Defined contribution plan

UAE national employees of the Company are members of the Government-managed retirement pension and

social security benefit scheme pursuant to U.A.E. Labour Law No. 7 of 1999. The Company is required to

contribute 12.5% of the “contribution calculation salary” of payroll costs to the retirement benefit scheme to

fund the benefits. The employees and the Government contribute 5% and 2.5% of the “contribution

calculation salary” respectively, to the scheme. The only obligation of the Company with respect to the

retirement pension and social security scheme is to make the specified contributions. The contributions are

charged to profit or loss.

3.8.2 Annual leave and leave passage

An accrual is made for the estimated liability for employees' entitlement to annual leave and leave passage

as a result of services rendered by eligible employees up to the end of the year.

3.8.3 Provision for employees’ end of service benefits

Provision is also made for the full amount of end of service benefit due to non-UAE national employees in

accordance with the UAE Labour Law and is based on current remuneration and their period of service at

the end of the reporting period.





3.9 Property and equipment

Capital work in progress is stated at cost. When commissioned, capital work in progress is transferred to

the appropriate property and equipment and is depreciated in accordance with Company’s policy.

Other property and equipment are carried at cost less accumulated depreciation and any identified

impairment losses.

Depreciation is charged so as to write off the cost of assets, other than capital work in progress, over their

estimated useful lives, using the straight-line method. The estimated useful lives, residual values and

depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for

on a prospective basis.

The gain or loss arising on the disposal or retirement of an item of property and equipment is determined as

the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or

loss.

The useful lives used in the calculation of depreciation of property and equipment, other than capital work

in progress, are as follows:

Years

Freehold property 30

Motor vehicles 5

Furniture and office equipment 4-5

Fujairah scrap yard improvements 10

3.10 Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation. Investment

properties are measured initially at cost, including transaction costs. Cost includes the cost of replacing part

of an existing investment property at the time that cost is incurred if the recognition criteria are met; and

excludes the cost of day to day servicing of an investment property. Subsequent to initial recognition,

investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or

losses arising from changes in the fair value of investment properties are included in the profit or loss in the

period in which they arise.

Investment properties are derecognised when either they have been disposed of or when the investment

property is permanently withdrawn from use and no future economic benefit is expected from its disposal.

Any gains or losses on the retirement or disposal of an investment property are recognised in the profit or

loss in the period of retirement or disposal.

Transfer is made to or from investment property only when there is a change in use evidenced by the end of

owner-occupation, commencement of an operating lease to another party. For a transfer from investment

property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date

of change in use. If owner occupied property becomes an investment property, the Company accounts for

such property in accordance with the policy stated under property and equipment up to the date of the

change in use.

Fair value is determined by open market values based on valuations performed by independent surveyors.

The Company determines fair value on the basis of valuation provided by an independent valuer who holds

a recognized and relevant professional qualification and has recent experience in the location and category

of the investment property being valued.





3.11 Impairment of tangible assets

At the end of each reporting period, the Company reviews the carrying amounts of its tangible assets to

determine whether there is any indication that those assets have suffered an impairment loss. If any such

indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the

impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset,

the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to

individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating

units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use,

the estimated future cash flows are discounted to their present value using a discount rate that reflects

current market assessments of the time value of money and the risks specific to the asset for which the

estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying

amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An

impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued

amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is

increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does

not exceed the carrying amount that would have been determined had no impairment loss been recognised

for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised

immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the

reversal of the impairment loss is treated as a revaluation increase.

3.12 Provisions

Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a

past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate

can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present

obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the

obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its

carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a

third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received

and the amount of the receivable can be measured reliably.





3.13 Financial assets

All financial assets are recognised and derecognised on trade date where the purchase or sale of a financial

asset is under a contract whose terms require delivery of the financial asset within the timeframe established

by the market concerned. Financial assets are initially measured at fair value, plus transaction costs, except

for those financial assets classified as at fair value through profit or loss, which are initially measured at fair

value.

Financial assets of the Company are classified into the following specified categories: bank balances and

cash, financial assets ‘at fair value through profit or loss’ (FVTPL), financial assets at fair value through

other comprehensive income (FVTOCI), and ‘loans and receivables’. The classification depends on the

nature and purpose of the financial assets and is determined at the time of initial recognition.

The effective interest method is a method of calculating the amortised cost of a financial asset and of

allocating interest income over the relevant period. The effective interest rate is the rate that exactly

discounts estimated future cash receipts through the expected life of the financial asset, or, where

appropriate, a shorter period to the net carrying amount on initial recognition.

Income is recognised on an effective interest basis for financial assets other than those financial assets

classified as at FVTPL.

3.13.1 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid

investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of

change in value.

3.13.2 Financial assets at fair value through profit or loss (FVTPL)

Investments in equity instruments are classified as at FVTPL, unless the Company designates an investment

that is not held for trading as at fair value through other comprehensive income (FVTOCI) on initial

recognition.

Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or

losses arising on remeasurement recognised in profit or loss. Fair value is determined in the manner

described in note 26.

Dividend income on investments in equity instruments at FVTPL is recognised in profit or loss when the

Company’s right to receive the dividends is established in accordance with IAS 18 Revenue.





3.13 Financial assets (continued)

3.13.3 Financial assets at fair value through other comprehensive income (FVTOCI)

At initial recognition, the Company can make an irrevocable election (on an instrument-by-instrument

basis) to designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not

permitted if the equity investment is held for trading.

A financial asset is held for trading if:

it has been acquired principally for the purpose of selling it in the near term; or

on initial recognition it is part of a portfolio of identified financial instruments that the Company

manages together and has evidence of a recent actual pattern of short-term profit-taking; or

it is a derivative that is not designated and effective as a hedging instrument or a financial

guarantee.

Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs.

Subsequently, they are measured at fair value with gains and losses arising from changes in fair value

recognised in other comprehensive income and accumulated in the cumulative changes in fair value reserve.

Where the asset is disposed of, the cumulative gain or loss previously accumulated in the investments

revaluation reserve is not transferred to income statement, but is reclassified to retained earnings.

The Company has designated all investments in equity instruments that are not held for trading as at

FVTOCI.

Dividends on these investments in equity instruments are recognised in profit or loss when the Company’s

right to receive the dividends is established in accordance with IAS 18 Revenue, unless the dividends

clearly represent a recovery of part of the cost of the investment.

3.13.4 Loans and receivables

Insurance and other receivables that have fixed or determinable payments that are not quoted in an active

market are classified as ‘loans and receivables’. Loans and receivables are initially measured at fair value,

plus transaction costs and subsequently measured at amortised cost using the effective interest method, less

any impairment. Interest income is recognised by applying the effective interest rate, except for short-term

receivables when the recognition of interest would be immaterial.

3.13.5 Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial

assets are impaired where there is objective evidence that, as a result of one or more events that occurred

after the initial recognition of the financial asset, the estimated future cash flows of the asset have been

affected.





3.13 Financial assets (continued)

3.13.5 Impairment of financial assets (continued)

Objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or

breach of contract, such as a default or delinquency in interest or principal payments; or

it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or

the disappearance of an active market for that financial asset because of financial difficulties.

For certain categories of financial asset, such as insurance receivables, assets that are assessed not to be

impaired individually are assessed for impairment on a collective basis. Objective evidence of impairment

for a portfolio of receivables could include the Company’s past experience of collecting payments, an

increase in the number of delayed payments in the portfolio past the average credit period, as well as

observable changes in national or local economic conditions that correlate with default on receivables.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets

with the exception of insurance receivables, where the carrying amount is reduced through the use of an

allowance account. When an insurance receivable is considered uncollectible, it is written off against the

allowance account. Subsequent recoveries of amounts previously written off are credited against the

allowance account. Changes in the carrying amount of the allowance account are recognised in profit or

loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related

objectively to an event occurring after the impairment was recognised, the previously recognised

impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial asset

at the date the impairment is reversed does not exceed what the amortised cost would have been had the

impairment not been recognised.

3.13.6 Derecognition of financial assets

The Company derecognises a financial asset only when the contractual rights to the cash flows from the

asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the

asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of

ownership and continues to control the transferred asset, the Company recognises its retained interest in the

asset and an associated liability for amounts it may have to pay.

3.14 Financial liabilities and equity instruments issued by the Company

3.14.1 Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the

substance of the contractual arrangement.

3.14.2 Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after

deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds

received, net of direct issue costs.





3.14 Financial liabilities and equity instruments issued by the Company (continued)

3.14.3 Financial liabilities

All financial liabilities are initially measured at fair value net of transactions costs except financial

liabilities at fair value through profit or loss (FVTPL) which are initially measured at fair value. All

financial liabilities are subsequently measured at amortised cost using the effective interest method or at

FVTPL. The Company does not have any financial liabilities measured at FVTPL.

3.14.3.1 Financial liabilities subsequently measured at amortised cost

Financial liabilities that are not held-for-trading and are not designated as at FVTPL are measured at

amortised cost at the end of the reporting period. The Company’s financial liabilities measured at

amortised costs include bank borrowings, and insurance and other payables.

The carrying amounts of financial liabilities that are subsequently measured at amortised cost are

determined based on the effective interest method with interest expense that is not capitalised as part of

the cost of an asset, is recognised in profit or loss except for short term payables where the recognition of

interest would be immaterial.

The effective interest method is a method of calculating the amortised cost of a financial liability and of

allocating interest expense over the relevant period. The effective interest rate is the rate that exactly

discounts estimated future cash payments (including all fees and points paid or received that form an

integral part of the effective interest rate, transaction costs and other premiums or discounts) through the

expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount

on initial recognition.

3.14.3.2 Derecognition of financial liabilities

The Company derecognises financial liabilities when, and only when, the Company’s obligations are

discharged, cancelled or they expire.

3.15 Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial

statements in the period in which the dividends are approved by the Company’s Shareholders.

4. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Company’s accounting policies, which are described in Note 3 to these financial

statements, management is required to make judgments, estimates and assumptions about the carrying

amounts of assets and liabilities that are not readily apparent from other sources. The estimates and

associated assumptions are based on historical experience and other factors that are considered to be

relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimate is revised if the revision affects only that period

or in the period of the revision and future periods if the revision affects both current and future periods.




4. Critical accounting judgements and key sources of estimation uncertainty (continued)

4.1 Critical accounting judgements

In the process of applying Company’s accounting policies, management is of the opinion that there is no

instance of application of judgments which is expected to have a significant effect on the amounts

recognised in the financial statements, apart from those described below.

4.1.1 Classification of properties

In the process of classifying properties, management has made various judgments. Judgments are needed to

determine whether a property qualifies as an investment property, property and equipment, property under

development and/or property held for sale. Management develops criteria so that it can exercise that

judgment consistently in accordance with the definitions of investment property, property and equipment,

property under development and property held for sale. In making its judgment, management has considered

the detailed criteria and related guidance set out in IAS 2 – Inventories, IAS 16 – Property, Plant and

Equipment, and IAS 40 – Investment Property, with regards to the intended use of the property.

4.1.2 Classification of investments

Management designates at the time of acquisition of securities whether these should be classified at

FVTOCI or FVTPL. In judging whether investments in securities are at FVTOCI or FVTPL, management

has considered the detailed criteria for determination of such classification as set out in IFRS 9 Financial

Instruments. Management is satisfied that its investments in securities are appropriately classified.

4.2 Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation

uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to

the carrying amounts of assets and liabilities within the next financial year.

4.2.1 Fair value of investment properties

The best evidence of fair value is current prices in an active market for similar properties. In the absence of

such information, the Company determined the amount within a range of reasonable fair value estimates. In

making its judgment, the Company considered recent prices of similar properties in the same location and

similar conditions, with adjustments to reflect any changes in the nature, location or economic conditions

since the date of the transactions that occurred at those prices. Such estimation is based on certain

assumptions, which are subject to uncertainty and might materially differ from the actual results.

4.2.2 Useful lives of property and equipment

Management reviews the residual values and estimated useful lives of property and equipment at the end of

each annual reporting period in accordance with IAS 16. Management determined that current year

expectations do not differ from previous estimates based on its review.

4.2.3 Provision for unearned premium reserve (UPR) and unexpired risk reserve (URR)

Unearned premium reserves includes unexpired risk reserve (URR) which are estimated by independent

actuary approved by Insurance Authority, using a range of standard actuarial claim projection techniques,

based on empirical data and current assumptions that may include a margin for adverse deviation.




4. Critical accounting judgements and key sources of estimation uncertainty (continued)

4.2 Key sources of estimation uncertainty (continued)

4.2.4 Provision for incurred but not reported claims (IBNR)

Estimates are made for the expected ultimate cost of claims incurred but not yet reported at the reporting

date (IBNR) by independent actuary approved by the Insurance Authority, using a range of standard

actuarial claim projection techniques, based on empirical data and current assumptions that may include a

margin for adverse deviation.

4.2.5 Provision for outstanding claims

Provision for outstanding claims include provision for Allocated Loss Adjustment Expenses (ALAE) and

Unallocated Loss Adjustment Expenses (ULAE) reserves. Considerable judgement is required in the

estimation of amounts due to contract holders arising from claims made under insurance contracts. Such

estimates are necessarily based on significant assumptions about several factors involving varying, and

possible significant, degrees of judgement and uncertainty and actual results may differ from estimates

resulting in future changes in estimated liabilities. The Company generally estimates its claims based on

previous experience and/ or loss adjustor reports. Claims requiring court or arbitration decisions are

estimated individually. Independent loss adjusters along with the Company’s internal legal counsel

normally estimate such claims. The ALAE and ULAE reserves are estimated by independent actuary

approved by the Insurance Authority, using a range of standard actuarial claim projection techniques, based

on empirical data and current assumptions that may include a margin for adverse deviation.

4.2.6 Impairment of insurance receivables

An estimate of the collectible amount of insurance receivables is made when collection of the full amount is

no longer probable. This determination of whether the insurance receivables are impaired, entails the

Company evaluating the credit and liquidity position of the policyholders and the insurance companies,

historical recovery rates including detailed investigations carried out during 2016 and feedback received

from the legal department. The difference between the estimated collectible amount and the book amount is

recognised as an expense in the profit or loss. Any difference between the amounts actually collected in the

future periods and the amounts expected will be recognised in the profit or loss at the time of collection.

4.2.7 Liability adequacy test

At end of each reporting period, liability adequacy tests are performed to ensure the adequacy of insurance

contract liabilities. The Company makes use of the best estimates of future contractual cash flows and

claims handling and administration expenses, as well as investment income from the assets backing such

liabilities in evaluating the adequacy of the liability. Any deficiency is immediately charged to the profit or

loss.

4.2.8 Valuation of unquoted equity investments

Where the fair values of financial assets and financial liabilities recorded on the statement of financial

position cannot be derived from active markets, they are determined using a variety of valuation techniques

that include the use of mathematical models or adjusted net asset value of the underlying investments. The

inputs to these models are derived from observable market data where possible, but where observable

market data are not available, judgment is required to establish fair values. The judgments include

considerations of liquidity and model inputs discount rates. The management believes that the chosen

valuation techniques and assumptions used are appropriate in determining the fair value of financial

instruments.




5. Property and equipment

Freehold

property

Motor

vehicles

Furniture

and office

equipment

Fujairah

scrap yard

improvements

Capital

work in

progress Total

AED AED AED AED AED AED

Cost

At 31 December 2014 - 5,109,909 16,053,520 569,619 977,370 22,710,418

Additions 7,043,095 555,000 3,356,953 - 444,656 11,399,704

Transfers - - 55,220 - (55,220) -

Disposals - (3,247,400) (21,350) (38,000) - (3,306,750)

At 31 December 2015 7,043,095 2,417,509 19,444,343 531,619 1,366,806 30,803,372

Additions - 115,210 665,108 - 1,367,385 2,147,703

Transfers - - 75,200 1,215,991 (1,291,191) -

Disposals - (402,050) (587,140) - - (989,190)

At 31 December 2016 7,043,095 2,130,669 19,597,511 1,747,610 1,443,000 31,961,885

Accumulated depreciation

At 31 December 2014 - 3,265,454 14,115,374 147,302 - 17,528,130

Charge for the year 78,256 328,503 1,050,284 56,962 - 1,514,005

Eliminated on disposal - (1,860,769) (20,846) (13,620) - (1,895,235)

At 31 December 2015 78,256 1,733,188 15,144,812 190,644 - 17,146,900

Charge for the year 234,770 295,853 1,267,726 108,282 - 1,906,631

Eliminated on disposal - (391,092) (583,305) - - (974,397)

At 31 December 2016 313,026 1,637,949 15,829,233 298,926 - 18,079,134

Carrying amount

At 31 December 2016 6,730,069 492,720 3,768,278 1,448,684 1,443,000 13,882,751

At 31 December 2015 6,964,839 684,321 4,299,531 340,975 1,366,806 13,656,472




5. Property and equipment

Freehold property comprises flats purchased in Dubai to be used for Dubai branch operations.

Capital work in progress mainly represents the construction of a new claims office in Dubai.

At 31 December 2016, the cost of fully depreciated property and equipment that was still in use

amounted to AED 13.9 million (2015: AED 13 million).

6. Investment properties

2016

2015

AED AED

Fair value at the beginning of the year 91,029,272 89,403,946

Increase in fair value during the year 55,728 1,625,326

91,085,000 91,029,272

Investment properties represent fair value of two buildings and plots of land which are located in

Fujairah, U.A.E.

The fair value of the Company’s investment properties have been arrived at on the basis of a valuation

carried out at that date by independent valuer not related to the Company and has appropriate

qualifications and recent market experience in the valuation of properties in the United Arab Emirates.

The fair value was determined based on the net income model that reflects recent market rentals for

similar properties in the same location and similar condition. In estimating the fair value of the properties,

the highest and best use of the properties is their current use. There has been no change to the valuation

technique during the year.

Details of the investment properties and information about the fair value hierarchy as at 31 December

2016 are as follows:

Fair value as at

31 December

Level 1 Level 2 Level 3 2016

AED AED AED AED

Plots of land and buildings on which

the same are erected

-

-

91,085,000

91,085,000

There were no transfers between the levels during the year.




6. Investment properties (continued)

For investment properties categorized into level 3 of the fair value hierarchy, the following information is

relevant:

Valuation

techniques

Significant

unobservable input(s) Sensitivity

Investment properties Income Capitalisation

Approach

Capitalisation rate, taking

into account the

capitalization of rental

income potential, nature of

property, and prevailing

market condition, of 7.5% -

8.5% (2015: 7.5% - 8.5%)

A slight increase in the

capitalization rate used

would result in a

significant decrease in

fair value, and vice

versa.

Yearly market rent, taking

into account the differences

in location, and individual

factors, such as frontage

and size, between the

comparable and the

investment properties.

A slight increase in the

market rent used

would result in a

significant increase in

fair value, and vice

versa.

The property rental income earned by the Company from its investment properties, which are leased

under operating leases, and renewed on an annual basis, and the direct operating expenses arising in the

investment properties are as follows:

2016 2015

AED AED

Rental income 4,456,807 4,612,288

Direct operating expenses (1,383,562) (1,370,817)

Income from investment properties (Note 18) 3,073,245 3,241,471

7. Financial investments

The financial investments at the end of reporting period are as follows:

2016 2015

AED AED

Financial investment designated at FVTOCI

Quoted U.A.E. equity securities 123,131,772 122,733,722

Unquoted U.A.E. equity securities 15,840,361 15,813,478

Mutual funds 4,456,613 3,946,454

143,428,746 142,493,654

Financial investments at FVTPL

Quoted U.A.E. equity securities 12,179,595 6,645,332




7. Financial investments (continued)

The movements in the financial investments are as follows:

2016 2015

AED AED At fair value through other comprehensive income


Purchases during the year 15,760,938 3,906,995

Disposals during the year (27,312,236) (10,758,038)

Net increase/ (decrease) in fair value 12,486,390 (7,937,582) Fair value at the end of the year 143,428,746 142,493,654

Investments at FVTOCI comprise the following:

2016 2015

AED AED

Within U.A.E. 141,680,133 140,936,735

Outside U.A.E. 1,748,613 1,556,919 143,428,746 142,493,654

Mutual funds comprise investment in local and international funds which are administered by financial institutions domiciled in U.A.E. The cumulative changes in fair value of financial investments carried at FVTOCI amounting to AED 32,126,810 – credit (2015: AED 15,048,242 – debit) is shown under equity. 2016 2015

AED AED

At fair value through profit or loss


Purchased during the year 43,895,906 14,268,302

Disposals during the year (38,634,040) (12,891,472)

Net increase/ (decrease) in fair value 272,397 (2,853,118)

Fair value at the end of the year 12,179,595 6,645,332

All financial investments at FVTPL are held in U.A.E.

8. Statutory deposit

2016 2015

AED AED

Statutory deposit maintained in accordance with Article 42 of

U.A.E., Federal Law No. 6 of 2007 10,000,000 10,000,000




9. Insurance contract liabilities and re-insurance contract assets

2016 2015

AED AED

Gross

Insurance contract liabilities:

Claims reported unsettled (i) 102,608,405 70,978,813

Claims incurred but not reported 21,401,000 17,839,000

Unearned premiums (ii) 103,915,000 91,538,000

Total insurance contract liabilities, gross 227,924,405 180,355,813

Recoverable from reinsurers

Claims reported unsettled (64,180,727) (30,646,144)

Claims incurred but not reported (8,209,000) (5,396,000)

Unearned premiums (18,165,000) (17,443,000)

Total reinsurers’ share of insurance liabilities (90,554,727) (53,485,144)

Net

Claims reported unsettled (i) 38,427,678 40,332,669

Claims incurred but not reported 13,192,000 12,443,000

Unearned premiums (ii) 85,750,000 74,095,000

137,369,678 126,870,669

(i) Outstanding claims include gross unallocated loss adjustment expenses reserve of AED 1,320,000

(2015: AED 3,025,000) and net unallocated loss adjustment expenses reserve of AED 1,320,000

(2015: AED 1,219,000).

(ii) Unearned premium reserve include gross unexpired risk reserve of AED Nil (2015: AED 944,000)

and net unexpired risk reserve of AED Nil (2015: AED 914,000).




9. Insurance contract liabilities and re-insurance contract assets (continued)

Movements in the insurance contract liabilities and re-insurance contract assets during the year were as follows:

2016 2015

Gross Re-insurance Net Gross Re-insurance Net

AED AED AED AED AED AED Claims

Notified claims 70,978,813 (30,646,144) 40,332,669 66,636,887 (28,645,794) 37,991,093

Incurred but not reported 17,839,000 (5,396,000) 12,443,000 17,460,000 (5,592,000) 11,868,000

Total at the beginning of the year 88,817,813 (36,042,144) 52,775,669 84,096,887 (34,237,794) 49,859,093

Claims settled during the year (123,088,093) 21,075,721 (102,012,372) (111,963,179) 19,566,362 (92,396,817)

Increase in liabilities 158,279,685 (57,423,304) 100,856,381 116,684,105 (21,370,712) 95,313,393

Total at the end of the year 124,009,405 (72,389,727) 51,619,678 88,817,813 (36,042,144) 52,775,669

Notified claims 102,608,405 (64,180,727) 38,427,678 70,978,813 (30,646,144) 40,332,669

Incurred but not reported 21,401,000 (8,209,000) 13,192,000 17,839,000 (5,396,000) 12,443,000


Unearned premium

Total at the beginning of the year 91,538,000 (17,443,000) 74,095,000 93,617,000 (17,973,000) 75,644,000

Increase during the year 14,261,000 (2,421,000) 11,840,000 4,737,000 (2,322,000) 2,415,000

Release during the year (1,884,000) 1,699,000 (185,000) (6,816,000) 2,852,000 (3,964,000)

Net increase/ (decrease) during the year (Note 17) 12,377,000 (722,000) 11,655,000 (2,079,000) 530,000 (1,549,000)





10. Insurance and other receivables

2016 2015

AED AED

Receivables arising from insurance

and re-insurance contracts:

Due from policy holders:

Due from policy holders – Accounts receivable 20,684,884 31,943,420

Due from policy holders – post dated cheques 4,860,137 3,564,753

Allowance for doubtful debts (2,704,248) (7,866,301)

22,840,773 27,641,872

Due from insurance and re-insurance

companies and brokers:

Due from insurance companies 3,753,737 4,839,710

Due from re-insurance companies 576,563 3,418,905

Due from brokers 25,496,221 25,462,522

Allowance for doubtful debts (21,175,022) (21,175,022)

8,651,499 12,546,115

Other receivables:

Prepayments and others 13,010,755 9,748,463

Total insurance and other receivables 44,503,027 49,936,450

The average credit period on insurance receivable is 60 days. No interest is charged on overdue balances

and no collateral is taken on insurance receivables. Due from insurance receivables outstanding above 180

days are provided for (other than for government related entities) based on estimated irrecoverable amounts

determined by reference to past default experience.

Due from insurance receivables - aging of past due but not impaired balances:

2016 2015

AED AED

180 – 365 days 1,754,410 3,437,424

Above 365 days 2,695,047 2,127,680

4,449,457 5,565,104

Due from government related entities included in above 2,172,528 3,127,519

Due from insurance receivables - aging of impaired balances:

2016 2013

AED AED

Above 180 days 23,879,270 29,041,323

Before accepting any new customer, the Company assesses the potential customers credit quality and defines

credit limits by customer. Of the due from policyholders balance at the end of year, AED 3.66 million (2015:

AED 3.69 million) is due from the Company’s largest customer. There is 1 (2015: 2) other customer who

individually represents more than 5% of the total balance of due from policyholders.




10. Insurance and other receivables (continued)

Movement of the allowance for doubtful insurance receivables during the year was as follows:

2016 2015

AED AED

Balance at the beginning of the year 29,041,323 28,716,358

Add: Allowance for doubtful debts - 324,965

Less: Allowance for doubtful debts written off (5,162,053) -

Balance at the end of the year 23,879,270 29,041,323

In determining the recoverability of an insurance receivable, the Company considers any change in the credit

quality of the insurance receivable from the date credit was initially granted upto the reporting date. The

concentration of credit risks is limited due to the customer base being large and unrelated. Accordingly, the

directors believe that there is no further allowance required in excess of the booked allowance for doubtful

debts.

11. Bank balances and cash

2016 2015

AED AED

Bank balances:

Current and call accounts 22,434,961 7,047,689

Fixed deposits 72,980,287 51,588,360

Cash on hand 216,220 539,936

Bank balances and cash 95,631,468 59,175,985

Bank balances are maintained with banks within United Arab Emirates.

Fixed deposit amounting to AED 2 million (2015: AED 2 million) is under lien in respect of bank credit

facilities granted to the Company (Note 14).

12. Share capital

2016 2015

AED AED

Issued and fully paid: 1,000,000 ordinary shares (2015:

1,000,000) of AED 100 each 100,000,000 100,000,000

13. Reserves

Statutory reserve

In accordance with U.A.E. Federal Law Number 2 of 2015, the Company has established a statutory reserve

by appropriation of 10% of profit for each year until the reserve equals 50% of the paid-up share capital. This

reserve is not available for distribution except as stipulated by the Law.

General reserve

The Company has established a General reserve by appropriation of 10% of profit for each year.

Appropriation to the General reserve may be stopped by the Shareholders’ General Assembly based on

recommendation from the Board of Directors. This reserve is distributable based on a recommendation by the

Board of Directors and Shareholders’ approval.




14. Bank Borrowings

2016 2015

AED AED

Loans 3,071,180 12,300,759

The bank borrowings are repayable as follows:

2016 2015

AED AED

Within one year 3,071,180 9,229,579

In the second year - 3,071,180

3,071,180 12,300,759

Less: Amount due for settlement within 12 months from the

reporting date (3,071,180) (9,229,579)

Bank borrowings (due for settlement after 12 months

from the reporting date) - 3,071,180

The Company entered in to a loan agreement with a U.A.E. bank to finance the cost of construction of

property. The loan is being repaid in 113 equal monthly installments of AED 800,000 each (inclusive of

interest) until full settlement, with first installment started in May 2011. The loan is secured by

mortgaging one of the Company’s investment properties comprising residential building and the land on

which it is erected with a total value of AED 59.40 million (2015: AED 59.40 million) in Fujairah,

mortgaging fixed deposits in favour of the financing bank, assignment of rental income from the said

building and issuance of promissory notes by the Company.

Interest rates on bank borrowings during 2016 ranged from 4% to 5% per annum (2015: 4% to 5% per

annum).

15. Provision for employees’ end of service indemnity

Movements in the net liability were as follows:

2016 2015

AED AED


Current year provision (charged to expenses) 1,294,536 1,008,996

Amounts paid (1,182,610) (471,678)

Balance at the end of the year 11,379,852 11,267,926




16. Insurance and other payables

2016 2015

AED AED

Payables arising from insurance

and re-insurance contracts:

Trade payables 12,838,979 9,829,195

Notes payable 269,510 277,795

Due to insurance companies 18,961,700 15,922,437

Due to re-insurance companies 1,718,544 3,099,071

Premium reserve withheld 4,641,061 4,576,944

Other payables:

Accrued expenses and provisions 3,171,709 3,153,525

Unclaimed dividends 10,500 10,500

Other payables 2,718,556 3,422,254

Total insurance and other payables 44,330,559 40,291,721

The average credit period is 90 days. The Company has financial risk management policies in place to

ensure that all payables are paid within credit time frame.

17. Net insurance premium revenue

2016 2015

AED AED

Gross premium written

Gross premium written 207,908,247 178,801,325

Change in unearned premium (Note 9) (12,377,000) 2,079,000

195,531,247 180,880,325

Reinsurance premium ceded

Reinsurance premium ceded (51,155,687) (45,050,089)

Change in unearned premium (Note 9) 722,000 (530,000)

(50,433,687) (45,580,089)

Net insurance premium revenue 145,097,560 135,300,236

18. Investments and other income

2016 2015

AED AED

Unrealized gain/(loss) in fair value of financial investments

at FVTPL (Note 7) 272,397 (2,853,118)

Profit on disposal of financial investments at FVTPL 2,153,479 529,340

Dividends from financial investments 4,208,894 4,429,200

Income from investment properties (Note 6) 3,073,245 3,241,471

Gain on disposal of property and equipment 188,145 81,658

Interest on bank deposits 1,688,846 1,440,465

Gain on increase in fair value of investment properties (Note 6) 55,728 1,625,326

Other income 35,527 -

11,676,261 8,494,342

Al Fujairah National Insurance Company P.S.C 41



19. Profit for the year

Profit for the year has been arrived at after charging the following expenses:

2016 2015

AED AED

Staff costs 21,334,217 20,038,780

Depreciation of property and equipment 1,906,631 1,514,005

Rent expense 3,790,734 3,538,384

Social contributions 46,500 18,000

20. Basic earnings per share

2016 2015

AED AED

Profit for the year (in AED) 17,370,365 14,336,780

Weighted average number of shares (share) 1,000,000 1,000,000

Basic earnings per share (in AED) 17 14

Basic earnings per share is calculated by dividing the profit for the year by the weighted average

number of shares outstanding.

21. Cash and cash equivalents

For the purposes of statement of cash flows, cash and cash equivalents include cash on hand and in bank

net of fixed deposits with maturity over three months from date of placement. Cash and cash equivalents

at the end of the year as shown in the statement of cash flows can be reconciled to the related items in the

statement of financial position as follows:

2016 2015

AED AED

Bank balances and cash (Note 11) 95,631,468 59,175,985

Deposit under lien (Note 11) (2,000,000) (2,000,000)

Fixed deposits with maturity over 3 months (54,971,095) (49,534,411)

38,660,373 7,641,574




22. Transactions and balances with related parties

Related parties include the Company’s major Shareholders, Directors and businesses controlled by them

and their families over which they exercise significant management influence as well as key management

personnel.

At the reporting date, amounts due from/to related parties included under due from policy holders and

gross outstanding claims were as follows:

2016 2015

AED AED

Due from policy holders 1,356,695 1,270,073

Gross outstanding claims 70,050 33,770

The amounts outstanding are unsecured and will be settled in cash. No guarantees have been received and

no expense has been recognised in the year for bad or doubtful debts in respect of the amounts owed by

related parties.

Transactions:

During the year, the Company entered into the following transactions with related parties:

2016 2015

AED AED

Gross premium 18,554,898 18,175,867

Claims paid 2,572,329 2,154,020

Premiums are charged to related parties at rates agreed with the management.

Compensations of key management staff and Board of Directors

2016 2015

AED AED

Key management staff:

Short-term benefits 7,367,932 6,875,010

Long-term benefits 534,140 304,329

Board of directors’ meeting allowance 975,000 975,000

23. Commitments and contingent liabilities

2016 2015

AED AED

Letters of guarantee 10,910,657 10,884,189

Capital commitments 1,400,000 2,500,000




24. Insurance risk

The risk under any one insurance contract is the possibility that the insured event occurs and the

uncertainty of the amount of the resulting claim. By the nature of an insurance contract, this risk is

random and therefore unpredictable.

For a portfolio of insurance contracts where the theory of probability is applied to pricing and

provisioning, the principal risk that the Company faces under its insurance contracts is that the actual

claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur

because the frequency or severity of claims and benefits are greater than estimated. Insurance events are

random and the actual number and amount of claims and benefits will vary from year to year from the

estimate established using statistical techniques.

Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative

variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be

affected across the board by a change in any subset of the portfolio. The Company has developed its

insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these

categories to achieve a sufficiently large population of risks to reduce the variability of the expected

outcome.

The Company manages risks through its underwriting strategy, adequate reinsurance arrangements and

proactive claims handling. The underwriting strategy attempts to ensure that the underwritten risks are

well diversified in terms of type and amount of risk, industry and geography. Underwriting limits are in

place to enforce appropriate risk selection criteria.

24.1 Frequency and severity of claims

The Company has the right not to renew individual policies, re-price the risk, it can impose deductibles

and it has the right to reject the payment of a fraudulent claim. Insurance contracts also entitle the

Company to pursue third parties for payment of some or all costs (for example, subrogation).

Property insurance contracts are underwritten by reference to the commercial replacement value of the

properties and contents insured, and claim payment limits are always included to cap the amount payable

on occurrence of the insured event. Cost of rebuilding properties, of replacement or indemnity for

contents and time taken to restart operations for business interruption are the key factors that influence the

level of claims under these policies. Property insurance contracts are subdivided into four risk categories:

fire, business interruption, weather damage and theft. The insurance risk arising from these contracts is

not concentrated in any of the territories in which the Company operates, and there is a balance between

commercial and personal properties in the overall portfolio of insured buildings.

The reinsurance arrangements include excess and catastrophe coverage. The effect of such reinsurance

arrangements is that the Company should not suffer net insurance losses above a set limit of AED

500,000 in any one policy. The Company has survey units dealing with the mitigation of risks

surrounding claims. This unit investigates and recommends ways to improve risk claims. The risks are

reviewed individually at least once in 3 years and adjusted to reflect the latest information on the

underlying facts, current law, jurisdiction, contractual terms and conditions, and other factors. The

Company actively manages and pursues early settlements of claims to reduce its exposure to

unpredictable developments.




24. Insurance risk (continued)

24.2 Sources of uncertainty in the estimation of future claim payments

Claims on insurance contracts are payable on a claims-occurrence basis. The Company is liable for all

insured events that occurred during the term of the contract, even if the loss is discovered after the end of

the contract term. As a result, liability claims are settled over a long period of time and element of the

claims provision includes incurred but not reported claims (IBNR). The estimation of IBNR is generally

subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified

to the Company, where information about the claim event is available. IBNR claims may not be apparent

to the insured until many years after the event that gave rise to the claims. For some insurance contracts,

the IBNR proportion of the total liability is high and will typically display greater variations between

initial estimates and final outcomes because of the greater degree of difficulty of estimating these

liabilities. In estimating the liability for the cost of reported claims not yet paid, the Company considers

information available from loss adjusters and information on the cost of settling claims with similar

characteristics in previous periods. Large claims are assessed on a case-by-case basis or projected

separately in order to allow for the possible distortive effect of their development and incidence on the

rest of the portfolio.

The estimated cost of claims includes direct expenses to be incurred in settling claims, net of the expected

subrogation value and other recoveries. The Company takes all reasonable steps to ensure that it has

appropriate information regarding its claims exposures. However, given the uncertainty in establishing

claims provisions, it is likely that the final outcome will prove to be different from the original liability

established.

The amount of insurance claims is particularly sensitive to the level of court awards and to the

development of legal precedent on matters of contract and tort. Insurance contracts are also subject to the

emergence of new types of latent claims, but no allowance is included for this at the reporting date.

Where possible, the Company adopts multiple techniques to estimate the required level of provisions.

This provides a greater understanding of the trends inherent in the experience being projected. The

projections given by the various methodologies also assist in estimating the range of possible outcomes.

The most appropriate estimation technique is selected taking into account the characteristics of the

business class and the extent of the development of each accident year.

In calculating the estimated cost of unpaid claims (both reported and not), the Company’s estimation

techniques are a combination of loss-ratio-based estimates and an estimate based upon actual claims

experience using predetermined formula where greater weight is given to actual claims experience as time

passes. The initial loss-ratio estimate is an important assumption in the estimation technique and is based

on previous years’ experience, adjusted for factors such as premium rate changes, anticipated market

experience and historical claims inflation.

The initial estimate of the loss ratios used for the current year (before reinsurance) are analysed below by

type of risk where the insured operates for current and prior year premiums earned.

Type of risk 2016 2015

Motor 83% 72% Non-Motor 78% 57%





24.3 Process used to decide on assumptions

The risks associated with these insurance contracts are complex and subject to a number of variables that

complicate quantitative sensitivity analysis. Internal data is derived mostly from the Company’s quarterly

claims reports and screening of the actual insurance contracts carried out at the reporting date to derive

data for the contracts held. The Company has reviewed the individual contracts and in particular the

industries in which the insured companies operate and the actual exposure years of claims. This

information is used to develop scenarios related to the latency of claims that are used for the projections

of the ultimate number of claims.

The choice of selected results for each accident year of each class of business depends on an assessment

of the technique that has been most appropriate to observed historical developments. In certain instances,

this has meant that different techniques or combinations of techniques have been selected for individual

accident years or groups of accident years within the same class of business.

24.4 Concentration of insurance risk

All of the Company’s underwriting activities are carried out in the United Arab Emirates.

The insurance risk before and after reinsurance in relation to the motor and non-motor insurance risk

accepted is summarized below:

Year ended 31 December 2016 Year ended 31 December 2015

Motor Non-motor Total Motor Non-motor Total

AED’000 AED’000 AED’000 AED’000 AED’000 AED’000

Gross sum insured 2,733,229 42,092,032 44,825,261 2,376,246 44,931,183 47,307,429

Net sum insured 2,612,343 6,924,374 9,536,717 2,291,889 5,687,427 7,979,316

24.5 Reinsurance risk

In common with other insurance companies, in order to minimize financial exposure arising from large

insurance claims, the Company, in the normal course of business, enters into arrangement with other

parties for reinsurance purposes.

To minimize its exposure to significant losses from reinsurer insolvencies, the Company evaluates the

financial condition of its reinsurers and monitors concentrations of credit risk arising from similar

geographic regions, activities or economic characteristics of the reinsurers. Reinsurance ceded contracts

do not relieve the Company from its obligations to policyholders. The Company remains liable to its

policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations

assumed under the reinsurance agreements.





24.6 Sensitivity of underwriting profit and losses

The contribution by the insurance operations in the profit of the Company amounts to AED 13 million for

the year ended 31 December 2016 (2015: AED 13 million). The Company does not foresee any major

impact from insurance operations due to the following reasons:

The Company has an overall risk retention level of 21% (2015: 17%) and the same is mainly contributed

by one class of business i.e., Motor line wherein the retention level is 96% (2015: 96%). However, in this

class the liabilities are adequately covered by excess of loss reinsurance programs to guard against major

financial impact.

The Company has net commission incurred of AED 3.7 million (2015: AED 1.9 million). Commissions

earned arise primarily from the reinsurance placements and are a consistent and recurring source of

income.

Because of low risk retention in non-motor lines of business, being 45% (2015: 44%) of the total volume

of business and limited exposure in the high risk retention area of motor business, the Company is

comfortable to maintain a net loss ratio of 64% (2015: 70%) and does not see any serious financial impact

in the insurance net profit.

25. Capital risk management

The Company’s objectives when managing capital are:

• to comply with the insurance capital requirements required by UAE Federal Law No. 6 of 2007, on

establishment of Insurance Authority and organization of its operations. The Company manages its

capital on a basis of its minimum regulatory capital position presented in the table below;

• to safeguard the Company’s ability to continue as a going concern so that it can continue to provide

returns for Shareholders and benefits for other stakeholders; and

• to provide an adequate return to Shareholders by pricing insurance contracts commensurately with

the level of risk.

In U.A.E., the local insurance regulator specifies the minimum amount and type of capital that must be

held by the Company in addition to its insurance liabilities. The minimum required capital (presented in

the table below) must be maintained at all times throughout the year.

The table below summarises the minimum required capital of the Company and the total capital held.

2016 2015

AED AED

Total capital held 100,000,000 100,000,000

Minimum regulatory capital 100,000,000 100,000,000




25. Capital risk management (continued)

The UAE Insurance Authority has issued resolution no. 42 for 2009 setting the minimum subscribed or

paid up capital of AED 100 million for establishing insurance firms and AED 250 million for reinsurance

firms. The resolution also stipulates that at least 75 percent of the capital of the insurance companies

established in the UAE should be owned by UAE or GCC national individuals or corporate bodies.

The gearing ratio at the end of the reporting period was as follows:

2016 2015

AED AED

Debt (i) 3,071,180 12,300,759

Bank balances and cash (see Note 11) (95,631,468) (59,175,985)

Shortage of debt under bank balances and cash (92,560,288) (46,875,226)

Equity (ii) 214,559,318 182,206,090

Net debt to equity ratio - -

(i) Debt is defined as bank borrowings (see Note 14).

(ii) Equity includes capital and reserves of the Company.

26. Financial instruments

The Company is exposed to a range of financial risks through its financial assets, financial liabilities,

reinsurance assets and insurance liabilities. In particular, the key financial risk is that the in the long-term

its investment proceeds are not sufficient to fund the obligations arising from its insurance and investment

contracts. The most important components of this financial risk are interest rate risk, equity price risk,

foreign currency risk and credit risk.

These risks arise from open positions in interest rate, currency and equity products, all of which are

exposed to general and specific market movements. The risks that the Company primarily faces due to the

nature of its investments and liabilities are interest rate risk and equity price risk.

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition,

the basis of measurement and the basis on which income and expenses are recognised, in respect of each

class of financial asset, financial liability and equity instrument are disclosed in note 3 to the financial

statements.




26. Financial instruments (continued)

Categories of financial instruments

Financial assets

31 December 2016

Loans and

receivables

Financial

investments

at FVTPL

Financial

investments

at FVTOCI Total

AED AED AED AED

Financial investments at FVTOCI - - 143,428,746 143,428,746

Statutory deposit 10,000,000 - - 10,000,000

Insurance and other receivables 42,870,119 - - 42,870,119

Financial investments at FVTPL - 12,179,595 - 12,179,595

Bank balances and cash 95,631,468 - - 95,631,468

148,501,587 12,179,595 143,428,746 304,109,928

31 December 2015

Loans and

receivables

Financial

investments

at FVTPL

Financial

investments

at FVTOCI Total

AED AED AED AED

Financial investments at FVTOCI - - 142,493,654 142,493,654

Statutory deposit 10,000,000 - - 10,000,000

Insurance and other receivables 47,409,351 - - 47,409,351

Financial investments at FVTPL - 6,645,332 - 6,645,332

Bank balances and cash 59,175,985 - - 59,175,985

116,585,336 6,645,332 142,493,654 265,724,322

Financial liabilities – measured at amortized cost

2016 2015

AED AED

Bank borrowings 3,071,180 12,300,759

Insurance and other payables 44,330,559 40,291,721

47,401,739 52,592,480

Management considers that the carrying amounts of financial assets and financial liabilities recorded in

the financial statements approximate their fair values.





Fair value measurement

The fair values of financial assets and financial liabilities are determined as follows:

The fair values of financial assets and financial liabilities with standard terms and conditions and

traded on active liquid markets are determined with reference to quoted market bid prices at the close

of the business on the reporting date.

The fair values of other financial assets and financial liabilities are determined in accordance with

generally accepted pricing models based on discounted cash flow analysis using prices from

observable current market transactions and dealer quotes for similar instruments.

Fair value of the Company’s financial assets that are measured at fair value on recurring basis

Some of the Company’s financial assets are measured at fair value at the end of the reporting period. The

following table gives information about how the fair values of these financial assets are determined:

Financial

assets

Fair value as at Fair value

hierarchy

Valuation

techniques and

key inputs

Significant

unobservable

input

Relationship

of

unobservable

inputs to fair

value

31 December

2016

31 December

2015

AED AED

Quoted equity

investments –

FVTOCI

123,131,772 122,733,722 Level 1 Quoted bid prices

in an active

market.

None. NA

Mutual funds 4,456,613 3,946,454 Level 3 Adjusted net

assets valuation

method after

adjusting for

certain

components in

financial

information of

underlying

companies.

Net assets

value.

Higher the net

assets value of

the investees,

higher the fair

value.

Unquoted

equity

investments –

FVTOCI

15,840,361 15,813,478 Level 3 Adjusted net

assets valuation

method after

adjusting for

certain

components in

financial

information of

underlying

companies.

Net assets

value.

Higher the net

assets value of

the investees,

higher the fair

value.

Quoted equity investments –

FVTPL

12,179,595 6,645,332 Level 1 Quoted bid prices in an active

market.

None. NA





Fair value measurement (continued)

Fair value hierarchy

The following table provides an analysis of financial and non-financial instruments that are measured

subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the

fair value is observable:

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets

for identical assets or liabilities;

Level 2 fair value measurements are those derived from inputs other than quoted prices included

within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly

(i.e. derived from prices); and

Level 3 fair value measurements are those derived from valuation techniques that include inputs for

the asset or liability that are not based on observable market data (unobservable inputs).

31 December 2016

Level 1 Level 2 Level 3 Total

AED AED AED AED

Financial assets at FVTPL

Quoted equities 12,179,595 - - 12,179,595

Financial assets at FVTOCI

Quoted equities 123,131,772 - - 123,131,772

Mutual funds - - 4,456,613 4,456,613

Unquoted equities - - 15,840,361 15,840,361

Investment properties - - 91,085,000 91,085,000

135,311,367 - 111,381,974 246,693,341

31 December 2015

Level 1 Level 2 Level 3 Total

AED AED AED AED

Financial assets at FVTPL

Quoted equities 6,645,332 - - 6,645,332

Financial assets at FVTOCI

Quoted equities 122,733,722 - - 122,733,722

Mutual funds - - 3,946,454 3,946,454

Unquoted equities - - 15,813,478 15,813,478

Investment properties - - 91,029,272 91,029,272

129,379,054 - 110,789,204 240,168,258

There were no transfers between the levels during the year. There are no financial liabilities which should

be measured at fair value and accordingly no disclosure is made in the above table.





Reconciliation of level 3 fair value measurements

Below is a reconciliation of movements in level 3 financial assets measured at fair values:

2016 2015

AED AED


Net increase in fair value recognised in other comprehensive income 537,042 1,397,436

20,296,974 19,759,932

Market risk

The Company’s activities expose it primarily to the financial risks of changes in foreign currency

exchange rates, interest rates and equity price risk.

Market risk exposures are measured using sensitivity analysis.

There has been no change to the Company’s exposure to market risks or the manner in which it manages

and measures the risk.

Foreign currency risk

There are no significant exchange rate risks as substantially all financial assets and financial liabilities are

denominated in Arab Emirates Dirhams, other G.C.C. currencies or US Dollars to which the Dirham is

fixed.

Interest risk

The Company’s exposure to interest rate risk relates to its bank deposits and bank borrowings. At 31

December 2016, bank deposits carried interest rates ranging from 0.25% to 3.90% per annum (2015:

0.25% to 3.5% per annum) and bank borrowings carried an interest rate of 4% to 5% per annum (2015:

4% to 5% per annum).

The Company has no exposure to interest rate risk towards its interest bearing financial assets as they

carry fixed interest rate.

If interest rates on bank borrowings had been 50 basis points higher/lower throughout the year and all

other variables were held constant, the Company’s profit for the year ended 31 December 2016 would

decrease/increase by approximately AED 15,356 (2015: by AED 61,504).

The Company’s sensitivity to interest rates has not changed significantly from the prior year.

Market risk management

Market price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in

market prices, whether those changes are caused by factors specific to the individual security, or its

issuer, or factors affecting all securities traded in the market. The Company is exposed to market price

risk with respect to their quoted investments. The Company limits market risk by maintaining a

diversified portfolio and by continuous monitoring of developments in the market. In addition, the

Company actively monitors the key factors that affect stock and market movements, including analysis of

the operational and financial performance of investees.





Market risk management (continued)

Sensitivity analysis

At the reporting date if the investments prices are 10% higher/lower as per the assumptions mentioned

below and all the other variables were held constant the Company’s:

profit would have increased/decreased by AED 1,217,960 (2015: AED 664,533) in the case of

financial investments at FVTPL.

other comprehensive income would have increased/decreased by AED 14.34 million (2015: AED

14.25 million) in the case of financial investments designated at FVTOCI.

Method and assumptions for sensitivity analysis

The sensitivity analysis has been done based on the exposure to equity price risk as at the reporting

date.

As at the reporting date if investments prices are 10% higher/lower on the market value uniformly

for all equities while all other variables are held constant, the impact on profit or loss and other

comprehensive income has been shown above.

A 10% change in investments prices has been used to give a realistic assessment as a plausible event.

Credit risk

Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in

financial loss to the Company.

Key areas where the Company is exposed to credit risk are:

• reinsurers’ share of insurance liabilities;

• amounts due from reinsurers in respect of claims already paid;

• amounts due from insurance contract holders; and

• amounts due from insurance intermediaries;

The Company has adopted a policy of dealing with creditworthy counterparties as a means of mitigating

the risk of financial loss from defaults. The Company’s exposure and the credit ratings of its

counterparties are continuously monitored and the aggregate value of transactions concluded is spread

amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed

and approved by the management annually.

Reinsurance is used to manage insurance risk. This does not, however, discharge the Company’s liability

as primary insurer. If a reinsurer fails to pay a claim for any reason, the Company remains liable for the

payment to the policyholder. The creditworthiness of reinsurers is considered on an annual basis by

reviewing their financial strength prior to finalisation of any contract.





Credit risk (continued)

The Company maintains records of the payment history for significant contract holders with whom it

conducts regular business. The exposure to individual counterparties is also managed by other

mechanisms, such as the right of offset where counterparties are both debtors and creditors of the

Company. Management information reported to the Company includes details of provisions for

impairment on insurance receivables and subsequent write-offs. Exposures to individual policyholders

and groups of policyholders are collected within the ongoing monitoring of the controls. Where there

exists significant exposure to individual policyholders, or homogenous groups of policyholders, a

financial analysis equivalent to that conducted for reinsurers is carried out by the Company.

Insurance receivables consist of a large number of customers, spread across diverse industries and

geographical areas. Ongoing credit evaluation is performed on the financial condition of insurance

receivable.

The Company does not have any significant credit risk exposure to any single counterparty or any group

of counterparties having similar characteristics. The Company defines counterparties as having similar

characteristics if they are related entities. The credit risk on liquid funds is limited because the

counterparties are banks registered in the United Arab Emirates.

The carrying amount of financial assets recorded in the financial statements, which is net of impairment

losses, represents the Company’s maximum exposure to credit risk.

Liquidity risk

Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an

appropriate liquidity risk management framework for the management of the Company’s short, medium

and long-term funding and liquidity management requirements. The Company manages liquidity risk by

maintaining adequate reserves by continuously monitoring forecast and actual cash flows and matching

the maturity profiles of financial assets and liabilities.

The following table summarises the maturity profile of the Company’s financial instruments. The

contractual maturities of the financial instruments have been determined on the basis of the remaining

period at the end of the reporting period to the contractual maturity date. The maturity profile is

monitored by management to ensure adequate liquidity is maintained.





Liquidity risk (continued)

The maturity profile of the assets and liabilities at the reporting date based on contractual repayment

arrangements was as follows:

Less than

30 days 30-90 days

91-180

days

181-365

days

Above 365

days Total


31 December 2016

Financial assets

At fair value through OCI - - - - 143,428,746 143,428,746

Statutory deposit - - - - 10,000,000 10,000,000

Insurance and other receivables 16,479,106 17,267,618 4,673,938 1,754,410 2,695,047 42,870,119

At fair value through profit

or loss - - 12,179,595 - - 12,179,595

Bank balances and cash - non

interest bearing 22,651,181 - - - - 22,651,181

Bank balances and cash -

interest bearing 16,009,192 1,371,821 2,232,027 2,102,674 51,264,573 72,980,287

55,139,479 18,639,439 19,085,560 3,857,084 207,388,366 304,109,928

Financial liabilities

Insurance and other payables 13,020,280 10,469,282 6,260,170 7,995,076 6,585,751 44,330,559

Bank borrowings 788,099 792,009 1,491,072 - - 3,071,180

13,808,379 11,261,291 7,751,242 7,995,076 6,585,751 47,401,739

Less than

30 days 30-90 days

91-180

days

181-365

days

Above 365

days Total


31 December 2015

Financial assets

At fair value through OCI - - - - 142,493,654 142,493,654

Statutory deposit - - - - 10,000,000 10,000,000

Insurance and other receivables 17,832,536 15,076,630 8,002,848 3,769,174 2,728,163 47,409,351

At fair value through profit or

loss - - 6,645,332 - - 6,645,332

Bank balances and cash - non

interest bearing 7,587,625 - - - - 7,587,625

Bank balances and cash -

interest bearing 5,912,326 18,837,909 6,143,889 20,694,236 - 51,588,360

31,332,487 33,914,539 20,792,069 24,463,410 155,221,817 265,724,322

Financial liabilities

Insurance and other payables 8,635,385 13,346,721 6,432,228 6,010,120 5,867,267 40,291,721

Bank borrowings 752,335 1,516,325 2,294,563 4,666,356 3,071,180 12,300,759

9,387,720 14,863,046 8,726,791 10,676,476 8,938,447 52,592,480




27. Segment information

The Company is organised into two main business segments:

Underwriting of general insurance business incorporating all classes of general insurance including fire,

marine, motor, medical, general accident and miscellaneous. All underwriting activities are carried out in

the UAE except for re-insurance which is done principally with companies outside U.A.E.

Investments incorporating investments in U.A.E. marketable equity securities, fixed deposits with banks

and investment properties.

Segmental information is presented below:

The following is an analysis of the Company’s revenue classified by major underwriting departments:

2016 2015

AED AED

Motor 114,380,314 99,298,644

Marine and aviation 6,760,440 6,421,829

Group life and medical insurance 37,855,549 29,419,100

Engineering, fire, general accidents and others 48,911,944 43,661,752

207,908,247 178,801,325

The following is analysis between the Company’s underwriting and investment business segments:




27. Segment information (continued)

2016 2015

Underwriting Investments Total Underwriting Investments Total


Net insurance premium revenue 145,097,560 - 145,097,560 135,300,236 - 135,300,236

Net claims incurred (100,856,381) - (100,856,381) (95,313,393) - (95,313,393)

Net commission incurred (3,672,277) - (3,672,277) (1,886,165) - (1,886,165)

Income from investment and others - 11,676,261 11,676,261 - 8,494,342 8,494,342

Segment result 12,965,400 11,676,261 24,641,661 12,917,976 8,494,342 21,412,318

Unallocated costs (net) (7,271,296) (7,075,538)


As of 31 December 2016 As of 31 December 2015

Underwriting Investments Total Underwriting Investments Total


Segment assets 158,940,505 319,673,628 478,614,133 127,078,066 291,756,618 418,834,684

Unallocated assets 22,651,181 7,587,625

Total assets 501,265,314 426,422,309

Segment liabilities 272,254,964 3,071,180 275,326,144 220,647,534 12,300,759 232,948,293

Unallocated liabilities 11,379,852 11,267,926

Total liabilities 286,705,996 244,216,219

There are no transactions between the business segments.

The Company’s underwriting business and the investments are mainly based within United Arab Emirates.




28. Dividends

The Shareholders’ General Assembly held on 28 April 2016 resolved that no cash dividends would be paid

for the year 2015 (2015: the Shareholders’ General Assembly approved cash dividends at 10% of share

capital amounting to AED 10 million for the year 2014).

The Board of Directors proposed to pay cash dividends at 10% of share capital amounting to AED 10

million for the year 2016.

29. Approval of financial statements

The financial statements were approved by the Board of Directors and authorised for issue on 9 March

2017.

al fujairah national insurance company p.s.c. · the principal activity of the company is the...

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